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TMI Blog1995 (3) TMI 152X X X X Extracts X X X X X X X X Extracts X X X X ..... to various properties and assets owned by the HUF and companies, namely, Scindia Investment P. Ltd., K.B. Bank Ltd., Scindia Potteries P. Ltd. and Manjri Stud Farms. The dispute was referred to the sole arbitrator Shri D. M. Harish, Advocate, who gave an award on 1-4-1980 concerning the various matters referred to him. This award has been made rule of the Bombay High Court on 11-7-1980. As per para 11 of the award certain assets with a book value of Rs. 30,21,434 were directed to be exchanged between the two companies, namely, Scindia Investment P. Ltd. and K. B. Bank Ltd. The said para reads as under : "I award and direct that SIPL and K.B. Bank exchange their aforementioned assets in the following manner : (a) SIPL transfers 1,29,572 shares of Nirlon Synthetic Fibres & Chemicals Ltd. To K.B. Bank at the value of Rs. 20 per share. Rs. 25,91,440 (b) SIPL transfers 4,400 shares of Scindia Potteries to K.B. Bank at book value Rs. 1,28,750 (c) SIPL transfers the debt owed to it by Scindia Potteries to K.B. Bank to the extent of Rs. 2,27,460 (d) SIPL transfers the following Motor cars and vehicles to K.B. Bank at book value : Volvo Motor Car Rs. 4,916 Kaiser Jeep Rs. 738 Pugeot Mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e HUF on partial partition as directed hereinafter Rs. 8,79,326 (g) By transfer of 149-665 kgs of silver received by her from Madhavrao Rs. 4,87,627 (h) By payment out of the amount of Rs. 50,115 received by Rajmata on partial partition of the HUF as directed hereinafter and the balance of Rs. 2,717 out of the amount of Rs. 18,083 received from Madhavrao Rs. 52,832 --------------------------- Rs. 25,00,000" As per the award assessee made adjustments in its books of account which for the assessment year 1981-82 were closed on 31st December, 1980. On the basis of the award and the entries made by the assessee in its books of account, Assessing Officer initially assessed the capital gains on the exchange of assets at Rs. 17,32,667 and computed the business income at Rs. 20,904 vide assessment order dated 24-3-1984. Subsequently, on 8-5-1985, order under section 154 was passed revising the computation of capital gains to Rs. 27,41,174. Both these orders were challenged in appeal before the CIT(A), Central Range, Bombay. The CIT(A) in an appeal against the order passed u/s 143(3) remanded the case to IAC (Asst.) with the direction to examine and decide the assessee's claim that no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... company, and (b) the holding company is an Indian company." A plain reading of section 47(v) reveals that the benefit under the said section can be claimed if two conditions are satisfied. There must be a transfer of a capital asset by a subsidiary company of which the whole of the share capital is held by the holding company and subsequently, secondly, the holding company is an Indian company. Prior to the transfer of the assets, SIPL was the holding company and K.B. Bank Ltd., a subsidiary company. However, there has been a dispute between the two parties, namely, Mrs. Madhavrao Scindia and Smt. Rajamata Vijayaraje Scindia. That dispute was resolved by arbitration. As a result of the arbitration award the shares of K.B. Bank held by SIPL and its nominees had to be transferred to Smt. Rajamata Vijayaraje Scindia at the value of Rs. 50 per share. Thus when the award is implemented the SIPL no longer remains the holding company of the K. B. Bank as the entire share holding are transferred to Smt. Rajamata Vijayaraje Scindia. The transfer of assets by way of exchange from K.B. Bank to SIPL is again by reason of the arbitration award. As already observed, when the award is read as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fair determination of the capital gains, if any, arising as a result of the transfer of the assets. 8. Section 45 of the Income-tax Act, 1961 which relates to the taxation of capital gains reads as under : " 45. (1) Any profits or gains arising from the transfer of a capital asset effected in the previous year shall, save as otherwise provided in sections 53, 54, 54B, 54D, 54E, 54F, 54G and 54H be chargeable to income tax under the head 'Capital gains', and shall be deemed to be the income of the previous year in which the transfer took place. (2) Notwithstanding anything contained in sub-section (1), the profits or gains arising from the transfer by way of conversion by the owner of a capital asset into, or its treatment by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him as stock-in-trade of a business carried on by him shall be chargeable to income-tax as his income of the previous year in which such stock-in-trade is sold or otherwise transferred by him and, for the purposes of section 48, the fair market value of the asset on the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by which the compensation or consideration is enhanced or further enhanced by the court, Tribunal or other authority shall be deemed to be income chargeable under the head 'Capital gains' of the previous year in which such amount is received by the assessee. Explanation : For the purposes of this sub-section,--- (i) in relation to the amount referred to in clause (b), the cost of acquisition and the cost of improvement shall be taken to be nil ; (ii) the provisions of this sub-section shall apply also in a case where the transfer took place prior to the 1st day of April, 1988 ; (iii) where by reason of the death of the person who made the transfer, or for any other reason, the enhanced compensation or consideration is received by any other person, the amount referred to in clause (b) shall be deemed to be the income, chargeable to tax under the head 'Capital gains', of such other person. (6) Notwithstanding anything contained in sub-section (1), the difference between the re-purchase price of the units referred to in sub-section (2) of section 80CCB and the capital value of such units shall be deemed to be the capital gains arising to the assessee in the previous year in whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to whether any profits and gains arose to the assessee as a result of exchange of assets. However, we feel that it is unnecessary as even if the result of the enquiry is against the assessee, the Assessing Officer would not be in a position to ascertain the capital gain & chargeable to tax under the provisions of the Act, as there is another difficulty in computation of capital gains. Under section 48 of the Income-tax Act, 1961, the income chargeable under the head 'Capital gains' are to be computed by deducting 'from the full value of the consideration' received or accruing as a result of the transfer of the capital asset certain amounts of expenditure incurred wholly and exclusively in connection with the transfer and the cost of acquisition of the assets and the cost of improvement thereto. Here comes the difficulty. The capital gains are to be computed with reference to the 'full value of consideration'. Thus, the full value of consideration received or accruing as a result of the transfer of the capital asset has got to be there for the purposes of taxing the capital gains. There are two expressions used under Chapter (IV)E relating to capital gains. One is fair market valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case of Sunil Siddharthbhai v. CIT [1985] 156 ITR 509 (SC), their Lordships of the Supreme Court have held that for the purposes of invoking section 45, the consideration received within the meaning of section 48 must be available in order to compute the profits. When such a consideration is not available, no profits or gains can be assessed to tax under section 45. We are, therefore, of the considered view that since the capital gains, if any, cannot be determined in the absence of any enabling provision permitting the Assessing Officer to take the market value of the assets as full value of the consideration, section 45 cannot be invoked. We may point out that provisions of section 52 are also inapplicable to the facts of the case as there is no allegation that the transfer was effected with the object of avoidance or reduction of liability of the assessee u/s 54. Moreover, for the purposes of invoking of section 52, the fair market value of the capital assets has got to be compared with reference to the full value of the consideration declared by the assessee in respect of the transfer of capital asset. Moreover, their Lordships of the Supreme Court in the case of K.P. Varghe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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